Question
(13) Talboe Company makes wheels which it uses in the production of children's wagons. Talboe's costs to produce 150,000 wheels annually are as follows: Direct
(13)
Talboe Company makes wheels which it uses in the production of children's wagons. Talboe's costs to produce 150,000 wheels annually are as follows: |
Direct material | $ 30,000 |
Direct labor | 45,000 |
Variable manufacturing overhead | 22,500 |
Fixed manufacturing overhead | 63,000 |
Total | $160,500 |
An outside supplier has offered to sell Talboe similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $18,000 of annual fixed manufacturing overhead would be avoided and the facilities now being used to make the wheels would be rented to another company for $46,500 per year. |
What is the highest price that Talboe could pay the outside supplier for each wheel and still be economically indifferent between making or buying the wheels? (Round your answer to 2 decimal places.) |
$1.03 | |
$1.08 | |
$1.07 | |
$0.77 |
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